Daily Market Color December 15, 2021Hawkish Fed Signals Accelerated Timetable for Tightening In its updated summary of economic projections released this afternoon, the Federal Reserve accelerated the timetable for normalizing monetary policy, signaling both a more rapid tapering of its bond purchase program as well as a more aggressive path for raising rates over the next three years. The more hawkish tone of the announcement is a response to this month’s shocking inflation reports which showed prices rising at the fastest pace in 40 years. Consumer prices rose at a 6.8% annual rate in November, and producer prices, which economists view an indicator of pipeline inflationary pressures, rose at an even-more rapid 9.6% annual pace. In recent comments, Fed and Treasury officials have acknowledged that these price pressures may be sustained, abandoning their earlier position that higher inflation was a “transitory” phenomenon. The median forecast of Federal Reserve officials now project eight 25 bp rate hikes between now 2024 (i.e., 3 in 2022, 3 in 2023, and 2 in 2024). This represents a major shift from the last Fed meeting when officials did not foresee any rate hikes in 2022. The Fed forecast suggests a faster pace of tightening than implied by the forward curve. Despite the steepening of the short-end of the yield, reflecting expectations of a more active Fed in the near term, the longer-end of the yield curve remains relatively flat. Ten-year yields remain historically low and well below March’s highs. This makes it possible for borrowers to extend the term of their fixed rate protection with only a modest pickup in interest expense. November retail sales miss expectations as prices continue to rise. Month-over-month retail sales increased 0.3% in November, well below analyst expectations of an 0.8% increase. The weak print comes after a strong October, as analysts believe consumers pulled forward holiday shopping due to supply chain concerns. However, the report suggests that consumers may be tempering their spending amid a resurgence in COVID cases throughout the country.